First, take a deep breath and remember that every little software company on Earth in under this threat. This fact alone means competition — or threat of competition — isn’t fatal, and possibly not even important.

Don’t fear the dinosaur, fear the quivering warm-blooded tree-shrew

65 million years ago an iridium-enfused extra-terrestrial meatball o’ death caused what we would nowadays call a “disruptive market event,” and the cold-blooded dinosaurs couldn’t weather the shitstorm. It was the little cenozoic warm-blooded agile (oh sorry, now we’re saying “lean”) rodents who adapted by getting “outside the nest” to discover how to eat cockroaches, because we all know that cockroaches are the one form of life that can survive anything.

Like unadaptable dinosaurs, whatever your large competitor is doing now is probably what they’ll be doing two years from now, possibly four. Same message, same product, same pricing, and still taking a dump on Facebook instead of playing by the new rules. By then where will you be?

That kind of competition isn’t scary. What is scary is another scrappy, smart startup like yours — another tree-shrew. The one who silently observes you from afar, then drives down the road you paved, skipping the mistakes you made and copying the good parts.

Take all your angst about big competitors and refocus it on the little ones. (I’ll talk about this sort of competition in future post.)

You’re scratching out a living, not “beating Google.”

If your only conception of “success” is to utterly destroy large companies, then I guess you should stop reading now.

But if you want to build a solid company, something you’re proud of, something that pays handsomely﻿ but doesn’t have to be worth $1B, then the game isn’t “us or them.” The question is: How can you own your little piece of the world; Not: How can you wrest $100m of revenue from a big guy.

It’s not your purpose to “beat” another company. It’s your purpose to define yourself on your own terms, not in terms of how you’re like or unlike someone else.

Sure it’s constructive to “set your sights” on a competitor, actively trying to beat them in the marketplace or even steal their customers (e.g. give a discount if someone switches to you). But ultimately the only thing that matters is that you earn more and more customers, whether or not anyone else does too.

Using a gorilla to increase your own prospects

It can actually be an advantage to have a big player in your market, especially if they enter your market after you’re established.

At Smart Bear we make a peer review tool for software programmers; you don’t have to be a geek to know that any software development tool company shares the following fear: “What if Microsoft copies us?” But we know that any code review tool from Microsoft would work only with their own version control system and only inside Visual Studio. (Can you imagine a tool from Microsoft that supported ClearCase, ran inside Eclipse, and had excellent support for Java?)

So what if they did copy us, and what if as a result they owned 100% of the Visual Studio market? Well that still leaves every other market on Earth. And then all of Microsoft’s competitors would also need a code review tool so they don’t fall behind on the hallowed competitive analysis chart, so suddenly IBM, CA, Oracle, Serena, CompuWare, and HP would need a code review tool right away. What better way to accomplish that than to buy the #1 (or maybe now #2) code review tool company — hey that’s us! — which by the way is profitable at a time when any company is happy to have a department that’s generating cash.

In short, Microsoft copying the idea would only validate the market, causing the value of Smart Bear to increase.

What actually happened is instructive too: Microsoft added the concept of “shelving” and put the absolute least amount of effort into supporting code review (it’s literally a check-box that indicates that, somehow, somewhere, a code review happened), so the result is that we sell a ton of Code Collaborator to Visual Studio shops.

In other words, they validated the market by entering it, but exactly because they’re a huge company they couldn’t make it good enough to stop us.

Go where they can’t follow

Big companies play only in big markets.

It’s logical: With all the expensive machinery and bureaucracy it takes a dump truck of money and dozens of man-years to build something new, so the opportunity has to be enormous. Even if they were successful in a small market there wouldn’t be enough profits to move the big needle at the top.

So Microsoft can’t attack a market unless there’s a potential to earn at least $1B. But wouldn’t you be happy playing in a market where you’d be able to rake in “only” $100M? Of course you would.

I’m not talking about carving out micro-niches where only seven people on Earth are potential customers. Just don’t go after massive, general markets like “everyone with a digital camera” or “anyone with a smart phone” or “all software developers.”

Do what they cannot

Big companies have significant advantages like money, a brand, a team, and a large customer base, many of whom will never switch even when presented with a clearly-better alternative﻿.

Their brand alone is a powerful force you probably cannot overcome, e.g. “eBay is trustable” or “Apple is cool” or “IBM is safe.”﻿

But the same attributes which deliver those advantages are also restrictive:

They can’t release a completely-revamped, brand-new version because they can’t retrain 200,000 users.

They can’t take a risk because protecting the existing revenue stream is more important than anything else, even if it means their ultimate demise.

They can’t quickly convert new ideas to released code because there’s requirements and documents and designers and approvals and schedules and testing and vetting.

They can’t change their image because there’s too much momentum with the old one﻿. For example if they have a reputation for bad tech support, even if it gets remedied most people will still think of them has having bad support.

They can’t observe and react quickly to changing market demands because there’s too many layers of people and process, and too many people whose careers depend onmaintaining the status quo.

For example, Intuit needs to look solid and timeless, their developers know C++ and desktop applications, and they can’t retrain the computer-phobic home users of Quicken… so they cannot create Mint.

As another example, IBM requires expensive infrastructure, development teams, and sales channels to command multi-million dollar consulting deals, but that also means it’s not profitable to do a small deal, which means small consulting shops never worry about competing with IBM.

They can’t change their product, so you can innovate without competition. They can’t change their image, so you can fill the gap. They can’t listen to a customer and make an impact one week later; you can.

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One thing I find interesting about big fish is that they need the small fish to groom them. If you can earn a nice living as an independent tree shrew while furthering a dinosaur’s long-term goals along the way, why not do it? Every big product has a complete ecosystem around it that is full of unsatisfied customers and many niches that the big players need filled but cannot fill on their own.
.-= Victor Nicollet’s latest blog post: 200 =-.

Excellent points. Much of the fear of the big boys is all about their resources and perceived ability to influence market. But your points about their weaknesses really boil down to competitive positioning, and that’s hard to do without competitors. Competition is good. It can tell you where you are. It can help you define what you are. It can help you determine how good you are. It’s all good, so position strongly. The day that there is no market for you to exploit and be a leader in, is the day all products have been perfected, and that day will never come. Compete! (Preaching to myself.)

Love the insight and thanks for the share. Especially appreciate the last paragraphs where it suggests small companies (like mine) to go where big companies cannot go. Indeed, we shouldn’t fear the dinosaur. :)

One thing big companies can’t do well is focus. That is the single biggest asset a small firm has.
When you focus on what you are good at and deliver, then they just can’t touch you. Focus with execution is how the small guy wins. Being nimble also helps but the focus and execution are where it’s at. Excellent read as usual.
.-= Jarie Bolander’s latest blog post: How To Build Strong Vendor and Supplier Relationships =-.

The other point is that even the gorilla’s never ‘own’ the market – even when they think they do. The IT industry is littered with the remains of great, profitable companies who’s CEO’s thought they needed to beat the gorilla to prove their worth – and over-extended as a result.

Also, if enough ‘tree shrews’ band together they can sometimes take on clients or projects that would normally go the gorilla’s way – in your concern about competition don’t forget that fellow shrews may actually be a way in and a leg up – particularly if they want to ‘eat’ a different bit of the client :-)

Most of us small business owners who are worried about the big boys are overparanoid. Often we obsess about competitors who we never actually meet on any battlefields over new business opportunities.

Jason, thanks for making many good points in this article. Especially that we should be more worried about competing with the our real competitors — those who are winning the jobs that we should be winning.

Thanks for writing, I really liked this one. It’s basically common knowledge, or should I said common ‘saying’ that big companies have these ‘structural’ barriers that prevent them from doing what tiny startups can – but many people don’t know what exactly all these structural barriers are. So while they accept the saying, they don’t know truly understand why.

If anything, I would love to hear more about these chinks in their armor because that encourages startup entrepreneurs and shows them opportunities that they may be able to carve out for themselves right from under the gorilla’s nose (and then grow big enough for the gorilla to even notice!)

Good article. It is easy to focus on the strengths of competitors, while ignoring their weaknesses. I drove a tank a while back (bear with me). From the outside the tank is terrifying and impregnable. On the inside it is a completely different story – it is cramped, their are sharp pointy things near your face, the visibility is terrible and you can’t hear anything over the engine.
.-= Andy Brice’s latest blog post: Lessons learned from 13 failed software products =-.

Totally agree. If you’ve ever worked at a decent-sized company you know that every feature change, feature addition, marketing change, etc. has to go through a some crazy 12-step program. A detailed spec has to be written, it has to be approved by way too many people, and modified to please them all. And if things go even remotely well maybe the change/addition is implemented in the next release, months down the road. If you’re small and agile, you can turn on a dime. You can make the decision right now and make a move in no time, no questions asked. Try doing that at Microsoft.
As you said, the energy is better spent focusing on what you can do better, not what the competition might be able to do better.
.-= Mac Martine’s latest blog post: Google word verification tells me I’m not human =-.

Our small company of two, Victus Media is challenged with finding a great lever to get into social/location data filtering, an area ripe for personalized content matching. We’ve got some ideas and have hacked them out (I’m the support tech henchmen, Tyler’s the chief hacknical wizard). But pushing one of our bigger ideas of a social feed reader and remixer has been a technical challenge. Without laser beam focus we’re toast before we begin and that’s an interesting challenge :).

Still pushing and beefing up my technical chops with a port of one of our projects to the app engine.